Willis to Buy Rival
Insurance Broker
For $1.7 Billion

Willis Group Holdings Ltd. has agreed to acquire rival insurance broker Hilb Rogal & Hobbs Co. for $1.7 billion in cash and stock in a deal that could spark more mergers in a sector analysts say is ripe for further consolidation.

The purchase price represents a 52% premium to where HRH shares closed Friday. Willis, of London, will pay about 10 times HRH's expected 2008 operating profit.

Willis said it would buy back a majority of the shares issued in connection with the deal as part of a $1 billion buyback plan it previously announced.

Although the deal, which is expected to close before the end of the year, counts as a major transaction for Willis, the brokerage will still trail market leader Aon Corp. in terms of revenue. A combined Willis and HRH will have annual revenue of about $3.4 billion, compared to Aon's $7.6 billion.

The HRH deal follows a recent regulatory change in New York that makes it easier for international brokers such as Willis to compete for deals. The insurance-brokerage landscape in the U.S. includes thousands of smaller players, and analysts believe consolidation will continue as larger brokers seek to grab market share.

Private-equity companies have been particularly active in the area, with Blackstone LLP, Apax Partners and Goldman Sachs Group Inc. recently completing transactions.

The HRH acquisition would boost Willis's presence in key markets in the U.S., where it currently derives 30% of its revenue. After the deal, the U.S. should account for about 45% of total Willis revenue.

Willis expects the deal to lead to cost savings of about $70 million by 2010, on an annualized basis. It said the deal would boost cash earnings per share right away.

HRH, based in Glen Allen, Va., posted revenue of $800 million last year. The middle-market firm is particularly strong in employee benefits, or the arranging of life insurance and other coverage for companies' employees.